Getting Insurance is Getting Harder and Costing More

If you own a home, you likely have home insurance. It's usually a condition of your financing. In any case, you should WANT to have it, because if something happens to your home, your insurance will provide you the funding to repair or rebuild. However, you may find that insurance is going to get both more expensive and harder to get. The impact of Katrina and the other major storms on the Gulf coast are creating problems that extend far beyond the footprint of the damage.

The very bad news is that in some cases insurance companies will not provide coverage in given areas at any price. Astoundingly, coverage on Cape Cod is being refused by several insurance companies even though the area has not been hit by a hurricane in 50 years. Another report I've seen indicated that 28,000 policyholders in eight counties in New York state are losing coverage. Insurance companies are getting antsy.

So, why do you want insurance anyway? It's expensive and most people never collect on it.

First, you want homeowner's coverage because it provides a number of important protections beyond rebuilding and repairing. It's not just about storm damage; it's also about theft and liability. Liability is increasingly important in our litigious society. 

Second, homeowner's coverage is typically a contractual requirement: If you have a mortgage you must carry basic insurance to protect your home, since your home is also the lender's security for the loan. Fail to maintain coverage and you can expect a letter from your lender discussing reasons why it may be necessary to foreclose if coverage is not put back in place.

Third, if homeowner's insurance is tough or impossible to get, financing is impacted and home values can weaken. And this is likely to happen in the Gulf areas most impacted by the storm.

It's easy to understand why insurance companies would not want to cover a beach-front palace in the face of hurricane predictions. But rates are being raised far from the ocean, which means that homeowners who represent little risk are effectively subsidizing those who live in the path of danger. This is not good news for any of us.

Michael

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